NBGRY - National Bank of Greece S.A. (NBGIF) Q2 2023 Earnings Call Transcript
2023-08-02 17:11:06 ET
National Bank of Greece S.A. (NBGIF)
Q2 2023 Results Conference Call
August 01, 2023 11:00 AM ET
Company Participants
Pavlos Mylonas - CEO
Christos Christodoulou - Group CFO
Greg Papagrigoris - Group Head of IR
Conference Call Participants
Alevizakos Alevizos - Axia Ventures
Mehmet Sevim - JPMorgan
Mikhail Butkov - Goldman Sachs
Osman Memisoglu - Ambrosia Capital
Daniel David - Autonomous Research
Panagiotis Kladis - Alpha Finance Investment Services
Simon Nellis - Citigroup
Alberto Nigro - Mediobanca
Maximilian Geckerston - Jefferies
Presentation
Operator
Ladies and gentlemen, thank you for standing by. I am Gelli, your Chorus Call operator. Welcome, and thank you for joining the National Bank of Greece conference call to present and discuss the second quarter 2023 financial results.
At this time, I would like to turn the conference over to Mr. Pavlos Mylonas, CEO of National Bank of Greece. Mr. Mylonas, you may now proceed.
Pavlos Mylonas
Good afternoon, everyone. And good morning to those of you joining from the U.S. Welcome to our second quarter 2023 financial results call. I'm joined by Christos Christodoulou, Group CFO; and Greg Papagrigoris, Group Head of IR. After my introductory remarks, Christos will go into more detail on our financial performance, and then we will turn to questions and answers. I will begin with a brief overview of Greece's economic prospects, a key driver of our performance, before I turn to our financial results in the second quarter. So let's begin.
Economic activity in Greece remains resilient despite the slowdown in the euro area, with leading indicators pointing to an acceleration in growth during the remainder of the year. Overall, full year GDP growth should exceed 2.5%. The composition of growth is healthy, with the main drivers being both exports of goods and tourism services as well as fixed investment. The export performance reflects strong competitiveness as Greece keeps gaining export market share, while fixed investment reflects strong enterprise profits and buoyant real estate prices. Fixed investment would be buoyed by surging FDI, €6.5 billion in 2022 alone, and support from the RRF. These 2 funding sources have already created a strong pipeline of large investment projects.
Regarding tourism, the recent forest fires, as important as they are, appear currently to have only a minor impact on tourism overall. And even in the local market of roads, this season has been hurt, hurt badly, but it is far from over. The other main component of GDP growth, private consumption remained solid despite the contractionary fiscal policy arising from the withdrawal of energy and other inflation support measures. This resilience reflects growing real disposable income in equal parts employment and wages, which should accelerate further as inflation continues to decline at a faster-than-expected pace. Recall that headline CPI inflation currently stands near 2%.
A final point on the macro. Both our fiscal and current account balances are overperforming significantly versus expectations. Both important considerations for the imminent upgrading of the sovereign to investment grade. The primary balance is heading for a surplus above 1.5% of GDP, ahead of budget projections, due to buoyant revenues. And the current account is down 2% of GDP in the first 5 months of the year versus a year earlier.
In such a positive economic environment, and supported by bank and state policies in place assisting the more vulnerable, our net NPE exposure has remained unchanged throughout the year at €0.3 billion, with a small pickup in mortgage areas in the second quarter being the only sign of strain. In the event, the results so far are well inside our full year '23 NPE formation guidance of €350 million, once again confirming the defensive nature of NBG's loan book.
The other critical component of our balance sheet is our liquidity position, which remains a defining comparative advantage. It comprises a large and stable demand deposit base, fueling a net cash position which increased by a further €1 billion in the second quarter to near €7 billion. Regarding loan demand, corporate credit demand at the system level remained soft in the second quarter. Our domestic corporate performing loans were up by 8% year-on-year in the second quarter and nearly flat year-to-date. A positive sign is that repayment of working capital facilities from corporates with excess cash has slowed markedly. Moreover, based on our strong pipeline of large corporate projects, we expect significantly stronger disbursement activity in the second half of the year, allowing us to meet our expectations for domestic loan additions of about €1 billion to €1.5 billion.
Moving to the profitability performance. The combination of; first, the country's growth performance; second, the renewed political mandate for structural reforms; third, the unique strength of our balance sheet, among other positives, its response to raising rates, so-called positive NII beta; and fourth, our successful transformation program, which has made us more efficient and sales-oriented. These 4 have resulted in a strong set of second quarter results, outperforming our targets on all fronts. Specifically, our first half '23 core PAT exceeded €0.5 billion, up by more than 3.5x year-on-year, reflecting strong core income growth, contained operating costs as well as the continued containment of the cost of risk.
Altogether, they drove our cost to core income to a low of 32% and our core return on tangible equity to above 16%, well above the target of 11% that we have for the full year '23. The strong results on the profitability front result in capital generation at a pace of over 80 basis points per quarter during the first half of '23, adding 160 basis points of core capital since the beginning of the year. This has pushed our CET1 ratio to be best-in-class and reached 17.3%. The solid results in the stress test, where NBG's performance was in bucket 1, should lead to lower regulatory capital requirements.
In view of the sustainability of the core income improvement, we are proceeding to revise our guidance for 2023. Specifically, we are raising our return on tangible equity target by 4 percentage points to exceed 15%. This target assumes that ECB rates peak near the current 375 basis points, leading our NIM to slightly exceed 300 basis points and our cost to core income to remain inside the 35% mark for 2023.
More importantly, we expect much of this good financial performance to be sustainable to 2025. The 2 main factors are: first, the reduction in the ECB DFR rate, deposit rate facility, will be gradual and constitute a reversion to a long-term sustainable equilibrium on our estimates of about 250 basis points. Second, loan volume effects. An estimated compounded annual growth rate of 7% should offset a large part of the impact of the base rate decline, while our faster than previously anticipated capital buildup is likely to reduce MREL costs through lower issuance. As a result, we guide for a core return on tangible equity of over 13% for 2025, also considerably higher than our previous guidance. The capital generated through the 3-year period to 2025 is anticipated to exceed 450 basis points versus our previous guidance of 350 basis points before shareholder remuneration is drafted in. In view of our solid results and their sustainability going forward, I'm quite confident regarding our ability to remunerate shareholders going forward.
With that, I would like to pass the floor to our group CFO, Christos, who will provide additional insight to our financial performance before we turn to Q&A.
Christos?
Christos Christodoulou
Thank you, Pavlos. Let me begin with the highlights of our profitability on Slide 16. The continued strong momentum in our NII of double-digit growth in fees on a like-for-like basis and sustained discipline in containing our cost base drove our core profit after tax to €508 million in the first half of 2023, translating into a core return on tangible equity which exceeded 16%. The strong and sustained outperformance on all fronts is triggering an upward revision of our core return on tangible equity guidance to over 15% for 2023, relative to our previous guidance of 11%. The key profitability driver is our NII, expected to increase by over 50% at the full year level against our previous guidance for growth in the high-teens on the back of higher-than-anticipated benchmark rates as well as lower deposit betas and a much smaller deposit substitution effect.
Surging NII is coupled with fee growth at the high-single-digit pace and contained costs. We are affirming our guidance for the year, thus sustaining our cost-to-core income ratio below 35%, relative to our previous guidance of circa at 42%. Additionally, better formation trends relative to expectations are set to keep cost of risk within our guidance of 80 basis points.
On Slide 17, we report the highlights of our balance sheet and the trends in asset quality. Disbursements picked up in Q2 '23 to €1.4 billion, up 22% quarter-on-quarter, driven by corporates. Domestic performing loans amounted to €27.4 billion in Q2 '23, up by €0.8 billion year-on-year and marginally lower year-to-date due to high repayments of working capital facilities from cash rich corporates in H1 '23, a trend that we saw slowing down in June and July. Encouragingly, the corporate pipeline in the second half of the year is very strong and will drive performing exposures back into healthy expansion territory in H2 '23.
Domestic deposits rebounded by nearly €1 billion quarter-on-quarter in Q2 '23, driven by mass market and premium customers, fully reversing Q1 corporate withdrawals. Thus, on a year-to-date basis, deposits were up by 1% or €0.4 billion, while our TLTRO balance was reduced further by €3.1 billion quarter-on-quarter to just €1.9 billion in June 2023. On asset quality, net NPE have remained near flat year to date at just €0.3 billion net of provisions, well inside guidance, while our domestic NPE ratio stood at 5.3%, with a cash coverage at 82% and cost of risk at 68 basis points.
Turning to capital on Slide 18. Our strong core profitability momentum allowed us to sustain organic generation at circa 80 basis points in Q2 '23, adding up 160 basis points of organic capital generation year-to-date, driving our CET1 and total capital ratios to 17.3% and 18.4%, respectively.
On Slide 20, our high-quality balance sheet underlines our unique comparative advantage in a period of tightening monetary and fiscal conditions, but also strong economic growth, supporting our rising profitability. On the asset side, nearly 90% of our loans remain floaters, with our securities portfolio hedged. On the liability side, we are mostly funded by deposits, which comprise circa 98% of our net funding, of which 80% are core and highly pricing elastic comprised mostly of savings deposits that ran on an average balance of less than €4,000 per customer.
Hence, the substitution of core deposits by time remains insignificant and the change in the deposit mix quarter-on-quarter immaterial. Our superior liquidity profile is also manifested by our net cash position, which after factoring means full TLTRO repayment, increased further to nearly €7 billion in Q2 '23, up by more than €1 billion quarter-on-quarter, highlighting the liquidity advantage of the bank reflected also in our leading [indiscernible] liquidity coverage ratio of over 250%. The high quality and robustness of our balance sheet is confirmed by the exceptional results NBG achieved in the EPA 2023 EU-wide stress exercise.
As disclosed on Slide 8 of our presentation, NBG ranks top amongst Greek banks and within the top in Europe with a capital depletion under the adverse scenario in the 3-year period at just 136 basis points, a result that positions our bank in the top 5 across all European banks participating in the exercise.
Now let me provide some further insight to the key drivers of our profitability. Domestic NII kept on a strong momentum, increasing by 12% quarter-on-quarter, as shown on Slide 21. This was mainly a function of base-rated pricing, driving net interest income from performing balances up by 12% quarter-on-quarter, while loan yield increased by circa 70 basis points quarter-on-quarter to 5.7%, implying a 70% rate pass-through. An additional driver was the increase in the interest income from our securities portfolio, driven mostly by higher average volumes. Time deposit costs have kept picking up to 134 basis points in Q2 '23 from 90 basis points in the previous quarter, implying EBITDA of circa 40%, well inside our guidance. Total deposits beta remains below 10%. As a result, our NIM was up by 40 basis points quarter-on-quarter to 297 basis points in Q2.
Turning to Slide 26. Domestic fees increased by 16% year-on-year on a like-for-like basis, underpinned by double-digit growth in both the retail and corporate lines of business, further supporting our sustainable core revenue stream. More notable growth areas were our cards, deposit bundles, investment products, as well as trade finance and lending fees. At the same time, transaction volumes picked up by 10% year-on-year in Q2 '23, spearheaded by e-banking transactions, up by 18% year-on-year, testament to the soundness of our digital strategy, which keeps delivering impressive results.
On the next slide, we show our costs, which have remained tightly contained. Despite sectoral wage increases in late 2022 and abating inflationary pressures during Q2 '23, the increase in personnel and G&A costs were managed at just 1% year-on-year inside our guidance, while the 12% year-on-year increase in depreciation charges reflects our ambitious IT strategy centering around our ongoing replacement of our core banking system. All in all, operating expenses were up by 3% year-on-year, driving our cost to core income ratio down to 32% in H1 '23 from 50% a year.
Turning to asset quality on Slide 28 to 30. Net NPE movement set just above 0 levels in Q2 '23, with marginally positive formation in the quarter. As already mentioned, the small pickup in mortgage areas in Q2 remains well inside our full year '23 formation guidance, making us feel very confident for the second half of the year. Going forward, market support teams to protect vulnerable performing borrowers, especially regarding the interest rate cap in variable-rate mortgages applicable since May will shield asset quality. Finally, sector-leading coverage levels across all stages were maintained, as shown on Slide 30.
On Slide 32 and 33, we'll provide a snapshot of key ESG priorities. We are enhancing further our ESG capabilities and infrastructure, capturing emerging opportunities from the green transition of the Greek economy and leading the market in sustainable financing. For all our achievements, we recently received the Diamond ESG and Social Responsibility Award by the Corporate Responsibility Institute.
Before closing my remarks, as shown on Slide 7, I would like to highlight that the strong H1 '23 financial performance, resulting in a new core return on tangible equity target of over 15% for 2023, is probably sustainable, with our core return on tangible equity target for 2025 set up over 13% despite maintaining a highly capital-generative model. This mainly reflects the normalization in our NII from the 2023 peak driven by an anticipated moderate decline of the ECB's benchmark rates from peak 2023 levels, with the performing loans expansion in the 2-year period to 2025 absorbing part of it, along with incremental [indiscernible] insurance costs. Furthermore, higher fees and cost containment will also be supportive, allowing us to achieve our cost-to-core income ratio below 40% in 2025, while cost of risk is seen decreasing to circa 60 basis points or lower over the same period.
NBG delivered a solid financial performance in the first half of 2023, underpinned by our high-quality balance sheet as well as our superior levels of capital and liquidity. Core profitability is on a strong and sustainable growth path, which further enhances our capital position, fortifying our commitment for enhanced rewards to our shareholders going forward.
With that, let's now open the floor to questions.
Question-and-Answer Session
Operator
[Operator Instructions] The first question is from the line of Alevizakos Alevizos with Axia Ventures.
Alevizos Alevizakos
Very well done on this set of results. I'll break question with 3 legs, if I may. You already touched upon it on your remarks when talking about the remuneration of the shareholders. So I wanted to know, do you believe that the EBA stress test pass with flying colors immediately gives you now additional ammunition to up the payout for this year's dividend? That's the first part.
The second part, in the interim, what are the other plans to deploy some capital organically or even through some small bolt-ons? It seems like the investment securities book keeps growing, but I wanted to know whether you have some pipeline, some alternative in the pipeline. And then finally, how do you feel about your ability to acquire reperforming loans that currently sit with the services and are due to return it to the system? Do you believe that this is now turning into an opportunity for this year or early next year?
Pavlos Mylonas
Okay. Thank you for those questions. On the stress test, clearly, the good results, we hope should lead to a lower regulatory capital requirement. So I think that basically frees up capital. And it leads to your second question. Well, let me finish your first question. We weren't allowed, as Greek banks, to issue dividends this year. Next year, we think we will. But again, it will be a number somewhere on the order of 20%, 30%. I don't think asking for much higher in the first year is quite the right thing to do, okay? So our goal is to have a decent-sized remuneration.
Now on the deployment of capital, which is growing and growing rapidly, we have to look at loan growth to support the domestic economy. We are looking at asset acquisitions, including loans, acquisitions, domestic, which include your last point, the reperforming loans, and the financing of portfolios of reperforming loans. We will be opportunistic in terms of joint ventures, partnerships, et cetera, as we have been, to continue what we're doing to find players who are experts in things that we are not and we should not be and partner up with them, including a way to improve our customer base. And clearly, there is a shareholder remuneration in a broader sense, which again, is not going to be the immediate request to the regulator.
So yes, good results is going to free up capital. The employment of capital I described and the reperforming loans is a very large opportunity. There's several tens of billions of assets which will come back in the next 5, 6 years to the banking sector. And either they come back as portfolios or they come back as single assets. I think there's a great opportunity, and NBG, I think, is the -- among the first banks in Greece to try to offer auction financing and other such services. So yes, I do think it's a great opportunity. And the fact that we did not spin off our buyback and kept the people, I think, was a strong -- gives us a strong competitive advantage.
Alevizos Alevizakos
That was very clear. Well done again for the results.
Operator
The next question is from the line of Sevim Mehmet with JPMorgan.
Mehmet Sevim
Looking at the run rate of NII, which continues to be very strong, and if we take into account all the data that you have now, where do you expect it to peak? And here, I'd like to understand how do you also see it evolve from that point in the subsequent quarters. So do you expect it to plateau or start coming down already from that peak?
And secondly, and maybe related to that, looking at the guidance for 2025, since now you've upgraded the NIM guidance to 250 basis points from 210 basis points, but do you still use the same BFR assumption of 2.5%? So can I please ask what differences you now see here in the underlying assumptions? Is it mix shift? Is it deposit betas? And maybe any other color you have.
Christos Christodoulou
Hello, thanks for your question. Let's start on the first 1 with regards to NII. So currently, based on what we've seen from ECB, our expectations, given the latest rate increases that NII would peak in Q3. They are onwards, given other dynamics as well, and that has to do with deposit betas. That has to do also with continuing spread compression, as well as other elements as the deposit mix. We expect a plateau in NII that would inevitably go down towards the latter years of our business bank. But yes, the peak should be expected to be around Q3.
Now with regards to your second part of the question, effectively, you've answered it as well. The reason for the improvement has indeed to do with the better-than-expected betas that we've seen in the deposits, as well as the much better-than-expected change in mix. Let me remind everybody that we expected that the transition, let's say, from -- from time -- from core to time would end up in the area of 65% in terms of core and 35% for time by the end of the year. We are nowhere near that. And that's why you've seen this upgrade in the numbers. I hope that answers your questions.
Q – Mehmet Sevim
That's very clear. Thank you, Christos. Can I ask if you're able to quantify the deposit betas and mix assumptions that you bake in, in the long term?
Christos Christodoulou
Yes. Well, at least the latest that we have in mind is that by the end of the year, we would expect the deposit mix to more or less settle down at around 75%. And core at 25% time. Let me remind everybody that now we are at 20% core to time. The pass-throughs on the time deposits, which are now around 40%, we expect it to just be tied up at 50%. While on the core deposits, we see that the beta is just at 3%. We wouldn’t expect it to be much higher than 5% or 6%. So that’s more or less the dynamics that we would expect the deposits going forward. Overall, deposit beta around 13% to 15%, I would say, somewhat there.
Operator
The next question is from the line of Butkov Mikhail with Goldman Sachs.
Mikhail Butkov
Good day. I have a couple of questions. First is on asset quality. So that in line with industry trends, we can see that your NPE ratio has increased marginally in the second quarter due to a one-off corporate case. However, contrary to industry trends, your level of cost of risk has reduced on a quarterly basis as opposed to peers. And we can also see that your NPE coverage has reduced marginally, given that you have the highest one in the industry. So the question is, what level of flexibility do you have in balance in between the absolute level of cost of risk and NPE coverage? That's the first question.
And the second one, we can also see different results on the lending growth across Greek banks and in the Bank of Greece data in the second quarter of this year. So how can you maybe describe the competitive landscape currently on that front? And finally, on a small follow-up on capital allocation strategy. Is there anywhere on the list that you can also make the share buybacks from the -- your largest shareholder in any size, or it's not the part of the capital allocation opportunities which you consider currently?
Christos Christodoulou
Okay. Thank you for the questions. I'll take the first one on asset quality, and Pavlos will take the other 2. So indeed, we've seen a marginal increase in formation, as we said in Q2. The change in our NPE ratio was just 13 basis points, so not significant. And we have this 1 corporate account with this system-wide account, I guess. But if we don't have, maybe our formation will have been in the negative.
So with regards to cost of risk, given the levels of coverage we have, yes, indeed, we do have flexibility. But given that, we are still not outside of the whole situation with the volatility and the economic uncertainty. We'll continue to be cautious. But though, we do have a lot of upside risk, and we'll see how we manage these buffers that we have seen so far with regards to our levels of coverage going forward. Pavlos, to you?
Pavlos Mylonas
Okay. On the loan environment, it’s been flattish for the first half of the year. And again, I think both myself and Christos mentioned it is in part due to the use of cash – cash management by corporates to reduce their interest cost. The dynamic part of the market is the corporate side, while the retail is still relatively weak. And in the corporate, it’s the large corporates, mostly. A bit the SMEs, but most of the corporates. And there are a lot of projects, some linked to the RRF and other European funds, and they’re bulky and choppy.
So for us, I can tell you that we have about €2.5 billion of corporate loans that have been approved but not yet disbursed, okay? So those will be coming. It’s a question of time-to-money, rather time to guess. And then we have about another, I’d say, 1 billion of projects which are coming to the -- to the credit committee, so reaching a time to – yes. And again, mostly no surprises, infrastructure, tourism, renewables, again, some SMEs, and some shipping. So it’s -- the first half was disappointing, but it’s a bit of a choppiness explained as well as the cash management.
Then the third question, buyback from the shareholder. It’s a question you need, it is allowed by the law. So that’s one thing. On the other hand, we need to ask the shareholder, okay? This is not something that we can have a view on independently. We are – we could be looking at that, but it’s something that we’d have to do in combination with the shareholder. So unfortunately, that’s as much as I can say on that one, I think.
Operator
The next question is from the line of Memisoglu Osman with Ambrosia Capital.
Osman Memisoglu
First, just hopefully a technical one. Your core profit this quarter -- yes, your core team is actually higher than that, [PAT], which is unlike previous quarters. So I was wondering what's driving that. That's my first question. Then coming back to my colleague's question on deposit costs, I was wondering if you could share the time deposit share you incorporate for '25 figures, and thanks for providing guidance on those. And one final thing on operating expenses. You had a impressive performance, down 1% Q-on-Q in this inflationary environment. Just want to get if you would share any color on how you see OpEx evolving from here.
Christos Christodoulou
Okay. Let's start on the last one. So you know that for this year, we expect, despite the inflationary pressures, to have a low-single-digit increase in OpEx. So obviously, this has to do a lot with the fact that we are investing in lot of technology, and we referred many times in our efforts to update our core banking system.
Now inflation is coming down, but it's still going to be in our lives for a bit longer. Although we envisage that we'll be able to contain costs going forward. We don't expect a big uptick in the numbers. And in the plan, we have -- we have a plan to remain in the low single digits with regards to costs going forward, which we are optimistic that we can deliver.
Now with regards to your first question. Whatever we have that is not considered core has to do with our trading and other income. And that's more or less the reconciliation between our core profit after tax as well as the attributable tax. There is nothing specific there. It has to do with the dynamics in that line and the difference between each quarter. And if I may ask you to repeat question 2 because I didn't get that, please?
Osman Memisoglu
Sure. Your time deposit share assumption for '25, and if you could maybe share it for '24 as well. How do you see this evolving? What's incorporated in that rotating for '24 and '25?
Christos Christodoulou
So we believe that the biggest pressure with regards to the change in the deposit mix will come, I would say, by the end of this year, mid next year. I -- I time with the rates will more or less normalize at the peak levels, and then the expectation would be that they are coming down. So I would say that in our plan, the terminal, let’s say, ratio between core in time is assumed somewhere between 70% to 30%, a bit lower -- even a bit lower, 68% to 70% core, and the remaining big time.
Operator
The next question is from the line of David Daniel with Autonomous Research.
Daniel David
I've just got a quick one. Just with regard to MREL and capital. Could you maybe just elaborate on your plans in debt markets, what are your ambitions for the rest of the year?
Christos Christodoulou
Okay. Now MREL. Currently, as you could see from the presentation, our MREL capital level is at 22.5%. Our package for the end of the year for January '24 is at 22.7%. So effectively, we are nearly there. There's more capital expected to be generated currently through the profitability of the Bank. So we see quite comfortably, and that gives us optionality. Nevertheless, being proactive, given that the binding target at the end of 2025 is at 27%, subject to market conditions, we could explore the opportunity of tapping the market in the second half of the year. So that's where we are, quite comfortable with regards to MREL, but we need to be proactive going forward.
Daniel David
[Technical Difficulty] Or is that 1?
Christos Christodoulou
Well, it depends. Again, as I said, market conditions will dictate whether we will go for a senior or a Tier 2. We do have flexibility. And you know that we have a buffer for a Tier 2 as well already. So we’ll see that when the time comes.
Operator
We will now proceed with the next question. Please, thank you. The next question is from the line of Kladis Panagiotis with Alpha Finance Investment Services.
Panagiotis Kladis
Thank you very much. Good afternoon to everyone. Coming back to the -- to your excess capital deployment. I remember a few months ago, you established an international desk for participating in syndicated loan projects abroad. So I was wondering, what are the expectations out of this initiative? Should we expect something for this year or maybe next year? Thank you.
Pavlos Mylonas
You remember well, and it is being set up. But at the moment, we don’t have formal targets for it. I think in the ‘24 budget, they will get targets. So we’re just still learning how to play this game. So we do not have targets. We do consider it an important part of the capital deployment strategy, but no specific numbers for the moment.
Operator
The next question is from the line of Nellis Simon with Citibank.
Simon Nellis
Just one quick one for me, which is on retail loan growth. I'd just be interested in your thoughts on when you think retail loan growth might revive and what conditions we need to see before it does?
Pavlos Mylonas
That's a tough question. We've been forecasting stronger retail growth for the past couple of years because the economy is doing well. And it hasn't materialized. I think the -- this time, it didn't come around because of the higher rates which are being absorbed now. I do see some light in mortgages, where the applications are higher, and people are seeing the real estate market be quite buoyant. So they're trying to get on that train. BSB, more hesitant. And consumer, there is some life. So -- but mortgages, if you look at retail overall, it is 80% mortgages. 80% mortgages, I'd say.
So that's what's going to decide how buoyant that market is going to be. So I think with the share price going up, even with interest rates high, with banks offering decent fixed-rate products, it will pick up. Don't forget as well that the mortgages that are on NBG's books, especially, but I think for the other banks as well, are the ones that have survived the crisis, and therefore, they have large capital payments. So I mean, we have, I think, €600 million repayments a year in mortgages. So we need to do €600 million of disbursements just for that book to remain flat. And though disbursements have increased, they are still not meeting that large capital repayment. So not a fantastic crystal ball there, but we're going to be more optimistic as GDP growth improves, as employment grows and as wage growth also helps disposable income.
So all those factors together should provide a boost to the retail sector, in contrast to 2022 and '23 when disposable income declined quite significantly. So that's...
Operator
The next question is from the line of Nigro Alberto with Mediabanca.
Alberto Nigro
Yes. The first one, may I ask you your expectation regarding the evolution of the contribution to the Single Resolution Fund and the Deposit Guarantee Fund for 2024? The second one, if you can tell us which is your ECB minimum reserve and the impact to the NII in 2024. And sorry, the last one, if you can repeat your expectation regarding the increase of term deposits this year. I just didn't get it.
Christos Christodoulou
Okay. Let's start from the last one. What we've said that from the point that we are now, which is a mix between core and time in the range of 80% to 20%, we would expect that to settle at around 75% to 25% by the end of the year. On your second question with regards to our ECB mandatory shares, that's about, let's say, €0.5 billion. So the pattern that we have on our NII based on the policy change is about, I would say, €18 million on an annual basis. So that leaves about €5 million for the rest of the year as [indiscernible], given the fact that I believe it's effective from September or August.
Now with regards to the evolution of the contributions, we expect that to go down from next year onwards, given the fact that we've reached the percentage that is prescribed by the legislation. So that will be something positive for us going forward.
Alberto Nigro
Thank you so much.
Operator
[Operator Instructions] Ladies and gentlemen, there are no -- apologies, there is one more question from Mr. Geckerston Maximilian with Jefferies.
Maximilian Geckerston
Just one on your CET1 capital target. And perhaps you could just give us a little update on where you think or what you think will be an adequate level to -- in terms of CET1 ratio to run the bank at. So we could get a bit of an idea what we should be thinking of excess capital.
Pavlos Mylonas
I think a number of 15% is what you should pencil down. Okay? 15%.
Maximilian Geckerston
Okay. Would that view change if you were to issue an AT1, perhaps?
Pavlos Mylonas
I hadn’t thought about it. I have to think about that. I’m not thinking very much of an AT1, though. For the moment, at least.
Operator
[Operator Instructions] Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Mylonas for any closing comments. Thank you.
Pavlos Mylonas
Thank you all for joining us for the second quarter results call. I appreciate you joining. It’s August 1 st , and I’m sure all of you want to go on vacation. So we will stick around for any of you who do want to answer questions. But otherwise, I wish everyone to have a good and well deserved rest for the next couple of weeks. Thank you all.
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National Bank of Greece S.A. (NBGIF) Q2 2023 Earnings Call Transcript